Industry group distribution, a "triple play" trade for summer and more.................

Welcome to the May edition of the Investors Intelligence Insight. This month's edition, published from the London office takes a look at the latest reading from the Advisors Sentiment indicator and focuses on a potential "triple play" trade over the summer months.

Meanwhile, the thoughts of many investors will be shifting away from "how much money can I make" towards "let's preserve the gains I have". Whilst we have seen the upside renewals on the S&P500, seasonality is now against us as we roll into the summer. Sector action will be worth watching - our industry groups are clustered to the right hand side of the bell curve, and at some point a more normal distribution pattern will emerge.

Blue indicates Bull status, Red indicates Bear status. Groups marked with a + are in an up column. Groups marked with a – are in a down column.

Updated through May 2, 2011 Click on a box to see the chart. Hover over a box for more details

In a recent Hotline, John Gray points out the Bullish% rolling over for the Restaurant Group. John writes:

On Wednesday the Restaurant bullish % moved down from O 74% to O 72%. It holds the bull top caution status triggered when the chart reversed down in March from its January high at X 84%. It is approaching a bear alert trading sell signal at O 68% that would call for close attention to the stocks in the group.

A sell signal in Chipotle Mexico CMG was responsible for the down move.

Note - to receive daily updates on sector breadth and price action, sign up to the Investors Intelligence US Stock Service.

Winner of "Limitless" competition -

In last month's II Insight we highlighted the (somewhat minor) role that Investors Intelligence played in the recent Limitless film. The staff at both the London and New York offices all enjoyed our trip to the pictures to see this tale of stock market trading, fast living and the inevitable rise-and-fall (and rise again) of the hero - played by Bradley Cooper, seen here sitting next to De Niro's character.

One of our chartbooks can be seen in a scene early on the film, and we asked readers to describe its position. We are pleased to announce that the winner of this competition is ex-subscriber Bob Rogers, from Florida, who correctly identified our P&F book sitting by Bradley Cooper's telephone. Bob will be receiving a years subscription to our Advisors Sentiment, priced at $199 - but worth more!

Advisors Sentiment indicator in the area of the 2007 market peak

Our Advisors Sentiment indicator has been attracting plenty of coverage from financial analysts and journalists over the past few weeks. Why? Because the "bulls - bears" reading has nudged over the 40 mark - a level of confidence not seen since the top of the 2007 bull market.

................while it helps, we suppose, to be able to tell the difference between a balance sheet and an income statement and know what P/E stands for, nothing in the investment armamentarium beats an educated grasp of crowd psychology.

Granted, getting a handle on investor sentiment is not an automatic guarantee of making a killing on the Street. It's a contrarian indicator that has been around for a spell, and like a lot of venerable technical tools is a bit the worse for the wear. It's grounded in the logical assumption that when everyone's bullish, it implies that a lot of buying power has already been used up and, of course, when everyone's bearish, the opposite holds.

If not infallible (what is, as we've noted before, besides the pope and financial journalists?), it provides investors with a highly reliable litmus test when the market reaches extremes of optimism or pessimism. And, right now, bullishness is dangerously rampant.

For confirmation, just take a gander at that simple chart that enlivens this grim page, the handiwork of Investors Intelligence, which weekly tracks the view of those earnest souls, investment advisors, who tell you when, and often what, to buy and sell. It depicts the difference between the number of advisors who are upbeat and who are downbeat.

That awesome spread in favor of the bulls works out to 41.6%, the most lopsided since the October 2007 all-time market peak, when the comparable gap was 42.4% and set the stage for the beginnings—and forgive us for stirring painful memories—of the worst equity disasters of the past half century.

Our view. The AS indicator is not a short-term trading tool, but we believe that no serious investor should be without this vital contrarian indicator. If you are not yet subscribing to our Advisors Sentiment indicator, why not sign up today? Click here to read more.

A triple play for the summer?

Will the summer see an Inflexion points in currencies and commodities? Shorting the USD has been an important trade this year. As measured by the DXY Dollar index, the value of the greenback has fallen by over 10% since the beginning of the year. For many traders, this has been a "one way bet". However, when a trade gets too crowded, risk increases.

We have been riding the short-USD trade for some time in the Investors Intelligence FX Hotline. But, we are now of the view that it is too late to add fresh money to this trade. Indeed, we may be getting to the point where profit taking and/or reversal will be the next step. The chart shows the DXY index. Note the significant support from 2008 above 71 and the very low levels printed on our USD bullish% indicator.

A triple play for the summer?

Set against this bear market in the USD has been the bull market in commodities. Many of the strong trends we have observed have been driven by asset-specific stories, for instance investors are continuing to buy (and hold) gold due to the ongoing sceptisim of the activities of the world's central banks. However, the commodity market as a whole (particularly the industrials) shows some evidence of exhaustion. Goldman has now moved from its previously bullish stance to "take profit" on a basket of industrials. Trends in miners are lagging. Market commentators also draw attention to the upcom ing $61 billion IPO by the Swiss-based commodity group Glencore as classic top-of-cycle behaviour.

In the II Commodities Hotline, we are keeping an eye on technical developments in the CRB, noting that this important index has the potential to post a massive head-and shoulders formation. Should the index give back recent gains and drop back below the 350 level, this kind of price action will weigh heavily on technically-minded commodity traders (and that's a lot of people). What is more, if the USD starts to recover, this will exacerbate the weakness in commodities.

Thus, the summer months are setting themselves up for a potential triple-play for traders -

Take profits (or short) industrial commodities

Close USD shorts/reverse

and, as flip side to the trade above, buy the JPY (see last month's II Insight for more on this).

Custom research for brokers & wealth managers

Subscribers to the Investors Intelligence service will be familiar with our coverage of domestic and international equities, as well as our popular Hotlines on the FX, Commodities and Indices. In addition to these subscription products, Investors Intelligence provides a number of brokers and market professionals with custom analysis services - typically tailored to the requirements of the user's customer base. Our London office has built up numerous institutional customers over the years with organisations such as TD Waterhouse, Barclays, & Thompson Reuters utilising components of our analysis in their offerings.

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